Richard Koo on balance sheet recessions

The video below features Rich Koo’s address at the recent conference of the Institute for New Economic Thinking at King’s College, Cambridge. Koo is the world-renowned chief economist of Nomura Research Institute and the author of “The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession”.

The Koo video provides lots of economic witch-doctoring/high-priest/chicken-guts reader ‘mobo-jumbo”. Did you love the turn of phrase “heavy lifting”? It sells to the politically expedient, as it helps to gather campaign contributions. And it sells very well to large corporations’ CEOs’, who get to earn yet another year of big bonuses, especially financial, and their owners who draw down dividends. The rest of us are suppose to be bamboozled.

The reality is the private sector mess/debt bomb, (insolvent corporations), was transferred to the public sector as debt and deficit, and now the public is on the hook for the corporate debt.

What should have taken place was the failed corporation went bankrupt, the imprudent punished with “walking papers out the door” and government funds used to create social safety net while the capitalist reinstate the very same corporations, now de-leveraged, into renewed operations. Under what should have happened the savers would have been rewarded and the imprudent would have been punished. Alternatively the failed corporations could have been nationalize,only if it make financial sense, re-organized, and then re-sold for a profit.

The Koo model has it the other way around; with savers being punished and the imprudent being rewarded. Koo’s model has it that instead of possibly 4 years of transition, we now have a generation or two of public debt re-payment and significant loss of social services. For those interested check out the video called Life and Debt (Jamaica); these guys have played this game before.

It is likely too late to reverse the recent debt transfers to the public. But in a just and fair world, governments would voraciously tax-back the cash grab from corporations via super-charged tax rates on dividends and capital gains, and executive bonuses, and expropriate equity positions to allow the public to benefit for salvaging these corporations.

But first we must fix the political system. This one is too expensive, as too much public dollars are going to corporate welfare as the government is too biased to (financial) corporations. The analogy is the farmer is protecting the fox in the hen house. Corporations have hijacked democracy to serve their interest with campaign contributions. The current government form fails to take into account the public interest. I’m convinced, selecting politicians to govern by random draw from a sample of telephone books would be better and improvements could be made from there. Alternatively, we need a new political party that has a model for public interest as its rationale and a specific platform for how it will deal with campaign financing.